This invention relates to financial business methods and systems, and more particularly to a method and system for financing future needs or intentions upon the death of a person. Additionally, it relates to a method and system for investing long-term assets of private and public foundations and nonprofit organizations such as 501(c)(3) tax exempt charities.
There are many problems associated with financing for future needs, intentions or requirements, including, without limitation, funeral service, burial services and monies already placed in trust to meet these needs. Heretofore, the conventional method of paying for funeral and burial services has been for a person to enter into a contract which stipulates services including the casket, embalming, transportation, flowers, cemetery, and related items, for an agreed-upon monetary sum. Pursuant to such a contract, a person would normally pay a lump sum at the time of contracting or agree to make timely payments until the price has been paid in full. These payments have heretofore been made directly to the funeral home or cemetery contracting for the services and merchandise selected, in an attempt to avoid the necessity of the deceased's family having to make last-minute decisions at a time when they are most vulnerable and the least able emotionally to make such decisions. Furthermore, it would save money by avoiding the costs of inflation.
Some of the major issues relating to the payment in advance for future services concern portability, cancellations, additional costs not disclosed up-front, refundability, and lack of ability to change or alter the services needed by the client, such as changing the burial plan to a crematory plan. Present practices either result in an outright forfeiture of all the money paid or severe penalties when some or all of the above occur. Moving of elderly parents from one state to another in order for the children to care for them has been a major cause of the “portability” problem. Funeral homes simply do not have the ability to transfer the contracts to other states.
Basically, there have been no federal regulations governing pre-need arrangements. Therefore, every state has established its own unique set of rules and regulations to govern and regulate this industry. Sometimes a funeral home has expended all the monies paid for a particular service, then goes out of business and does not have the money to provide those services upon the death of a person. Often the family has to pay additional monies at the time of the death to provide those services. To combat the problem, most states have required that the funeral home or cemetery selling these services must place in a trust account varying amounts of the monies paid in advance for pre-need policies.
This has led to even more problems with the monies required to be placed in trust accounts and the ability of the funeral home to access those funds. In cases of outright fraud, some funeral homes and cemeteries simply refuse to put the money into trust accounts until they are discovered. Some states require 100% of the monies be placed in trust and others only require as little as 50% be placed in trust. Some states allow annual withdrawals of amounts placed in trust. Furthermore, many funeral homes have requirements concerning trust funds that differ from the cemetery's requirements concerning trust funds, and, furthermore, “services” have requirements for handling trust funds that differ from “merchandise” providers.
Because of the attempts by the states to curb abuses and fraud in the handling of these trust funds, restrictions on how the money may be invested and who must be employed to manage the funds, the actual returns on the money placed in trust is, at best, three percent (3%) annually when the stock market and interest rates are normal. In some cases, even this small amount is consumed by management fees and administrative charges. In recent times, there have been losses in these accounts resulting in funeral homes being required to provide services that cost them more than they received for the original contact.
A similar, but slightly different, need arises in the nonprofit world. Certain charitable gifting programs are designed to provide monies to the charities upon the death of the donor. Good examples of these programs are charitable remainder trusts, charitable gift annuities, charitable lead trusts and pooled income funds. Permanent endowment funds and donor advised funds are meant to provide income but must also preserve the original principal in order to do so.
Presently, however, nonprofits must accept market risk of losses. Along with losses comes a corresponding drop in annual income. Because of this risk, they are forced to allocate a large proportion of their assets to “safe”, low return, fixed income type investments. These types of investments offer no growth potential to the principal, only a perception of “safety” because of the guaranteed return of principal along with a fixed-dollar annual return. This leaves less money to be invested for growing the principal. The annual income, under this conventional approach, is thus restricted to these low-yielding investments.
Combine this “safe,” principal-protecting strategy with the losses in the principal that occur during market downturns, recessions, and the like, and the result may typically be a declining annual cash flow with which to fund the nonprofit's programs. This annual income is key to funding both the day-to-day operations of the nonprofit as well as the programs they are designated to administer. (Scholarships, payments to donors, charitable programs).
Thus, a need exists for a method and system that will eliminate the foregoing problems concerning pre-need financing. The prior art includes the following U.S. Patents (all of which are incorporated herein by reference for their useful background information involving financial systems, and especially for their useful background information relating to the use of computers in such systems), none of which is like the present invention:
U.S. Pat. Nos.INVENTORSISSUE DATE6,017,063NilssenJan. 25, 20005,742,775KingApr. 21, 19986,343,272Payne et al.Jan. 29, 20026,192,347GraffFeb. 20, 20016,148,293KingNov. 14, 20006,049,772Payne et al.Apr. 11, 20005,966,693BurgessOct. 12, 1999